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1 21 March 2013 Australian Securities Exchange Brickworks Limited ABN Wallgrove Road Horsley Park NSW 2175 PO Box 6550 Wetherill Park NSW 1851 Tel Fax info@brickworks.com.au Attention: Companies Department BY ELECTRONIC LODGEMENT Dear Sir/Madam, Please find attached a presentation and additional comments to be presented to analysts today regarding Brickworks financial results for the half year ended 31 January 2013, for immediate release to the market. Yours faithfully, BRICKWORKS LIMITED IAIN THOMPSON COMPANY SECRETARY

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4 Chairman: Good Afternoon Ladies and Gentlemen and welcome to the Brickworks analyst briefing for the half year ended 31 January Today I will provide an overview of the Brickworks results and then our Managing Director, Mr. Lindsay Partridge will take you through the results in more detail. Following this, our Lead Independent Director, Mr. Robert Webster will give an additional presentation reviewing Brickworks investment in Washington H Soul Pattinson. Mr. Alex Payne, our Chief Financial Officer is also here to answer any questions at the conclusion of the presentation. 3

5 Brickworks corporate structure has provided diversity and stability of earnings over the long term. There are three main parts to the Brickworks business model: The Building Products Group, Land & Development and Investments. The Building Products Group consists of Austral Bricks, Austral Masonry, Bristile Roofing, Austral Precast and Auswest Timbers. The Land & Development business exists to maximise the value of surplus land created by the Building Products business. The 42.72% interest in Washington H. Soul Pattinson provides a stable earnings stream and a superior return. 4

6 The Normal Net Profit After Tax increased by 13.1% to $56.0 million for the first half, compared to the prior corresponding period. The increase in earnings was driven by a major land sale during the half, with Oakdale South sold into the JV Property Trust for a profit of $23.4 million. Building Products earnings were relatively stable compared to the prior year and investments earnings were reduced. 5

7 Normal Earnings Per Share increased by 12.9% to 37.9 cents per share. Headline Earnings Per Share was up by 3.5% to 38.0 cents per share. 6

8 The Directors have resolved to maintain a steady interim dividend of 13.5 cents per share, fully franked. 7

9 Brickworks has outperformed the All Ordinaries Accumulation Index in terms of Total Shareholder Return over the short, medium and long term. Returns to 31 January 2013 exceed the Index by 4.4% per annum over five years, 0.3% per annum over ten years and 3.2% per annum over fifteen years. 8

10 Thank you Chairman. Good afternoon ladies and gentlemen. 9

11 Building Products earnings before interest and tax ( EBIT ) was $14.0 million, down 2.8% on the previous corresponding period. A strong uplift in earnings from Austral Bricks and Bristile Roofing was offset by declines in Austral Precast and Auswest Timbers. Land and Development EBIT was up significantly to $37.3 million. This includes earnings from the Property Trust of $15.0 million, up 17.2%. During the half, Oakdale South was sold into the Property Trust for a profit of $23.4 million. There were no land sales in the prior corresponding period. Investment EBIT from Washington H Soul Pattinson ( WHSP ) was down 30.9% to $28.8 million. Total EBIT was $76.5 million for the half and EBITDA was $89.3 million. Brickworks overall normalised NPAT result of $56.0 million was up 13.1% on the prior period, including a significantly higher income tax cost of $10.7 million. Interest cost was relatively flat compared to the prior corresponding period. After including the $0.1 million contribution of Significant Items, the Headline NPAT was $56.1 million. 10

12 Looking at our Key Financial Indicators. Net Tangible Assets per share increased by 3.1% to $9.73. Shareholders Equity increased to $1.708 billion at the end of the half which represents $11.56 per share. Return on Shareholders Equity was up to 6.6%, reflecting the improved NPAT result. Total net cash flow from operating activities was $26.6 million, down from $38.0 million in the previous corresponding period. This was the result of brick stock unit cost increases due primarily to the rising cost of energy, including the carbon tax. Net debt increased by $18.4 million to $303.8 million, with net debt to capital employed being 15.1% at the end of the period. Interest cover was increased to 6.4 times from 5.2 times in the prior period. 11

13 Stay in business capital expenditure was $8.1 million, representing 63.1% of depreciation. Growth capital expenditure was $1.4 million, including final building work on the new batching plant for the Wetherill Park precast facility in New South Wales. Total Building Products total capital expenditure was $9.5 million for the half. Land and Development capital expenditure was $0.2 million. There were no business acquisitions during the half. 12

14 Now looking at the Building Products result in more detail. 13

15 Revenue for the half year ended 31 January 2013 was up 3.9% to $278.7 million compared to $268.2 million for the previous corresponding period. Excluding the impact of acquisitions, like for like revenue was up 1.6%. EBITDA was marginally up on the prior period, at $26.9 million. EBIT was $14.0 million, down 2.8%. Improved earnings were achieved in the Austral Bricks and Bristile Roofing divisions, with good pricing outcomes delivering improved margins, despite lower volumes and continued input cost pressures. The significant progress made in these divisions was offset by declines in Auswest Timbers and Austral Precast, with both of these operations experiencing significant disruptions during the half. Sales Margin was down slightly on the prior period. 14

16 Total employee numbers have reduced by 49 since 31 July 2012, reflecting the ongoing rationalisation of manufacturing operations, including the closure of the roof tile plant at Caversham in Western Australia and consolidation of precast operations in New South Wales and Queensland. Brickworks has been proactive in resizing the business to seek maximum productivity in all market conditions. In total the workforce has been reduced by 26% since 31 July 2007, after including the impact of employees added through acquisitions. Tight cost control continues to be an ongoing feature of Brickworks management. An estimated $7.6 million in costs were removed in 1H13 compared to the prior period, before the impact of input cost increases. In addition to the consolidation activities mentioned, other cost reduction initiatives included: An operational efficiency program that includes a structured training program across all plants Matching capacity with supply, with the closure of Riverview (QLD) and Cardup (WA) brick plants; and Automation of back-office support processes. Our work in this area has been internationally recognized, being awarded the Best Financial Accounts Payable Use at the Kofax Transform 2013 awards in San Diego last week. These cost savings were offset by increased input costs. For example, the first half result incorporates an increase of $4.7 million in energy costs, including the carbon tax. A range of additional cost reduction activities are planned for the second half, such as A masonry operational restructure, including the closure of Port Kembla, completed earlier this month The Joint Venture with CSR for supply of bricks in New Zealand, enabling the rationalisation of distribution outlets and back-office costs 15

17 Estimated commencements for Australia were up 0.3% to 75,568, for the six months ended 31 December 2012, from 75,324 in the previous corresponding period. The increase was driven by a rise in other residential commencements, up 4.7% for the period, offset by continued weakness in detached houses, down 2.2%. The chart on screen shows the change in dwelling starts by state for the half, compared with the prior corresponding period. As can be seen, activity was patchy across the states, with increases in detached houses activity in New South Wales, Queensland and Western Australia offset by weakness in the other states. The improvements in detached housing in Queensland and Western Australia come of historical lows, whilst the gradual New South Wales recovery comes after years of below average activity. Detached house starts in Victoria, the biggest housing market in Australia were down 15% compared to the prior period. 16

18 Despite a decline in volume by 6.3%, Austral Bricks delivered significantly higher earnings for the half, up 54.1%, primarily as a result of a 7.7% increase in prices. Nationally sales revenue was up 2.6% to $144.5 million compared to the prior corresponding period. Austral Bricks strategy of continued focus on developing fashionable and market leading products assisted to deliver improved margins, helping to offset the impact of continued input cost pressures, including the impact of the carbon tax. Looking at the performances across each state, earnings in New South Wales and Queensland improved considerably compared to the prior year, whilst Victoria was down, on the back of the tough market conditions. The result in Western Australia was up marginally despite the continued tough market in that state. 17

19 A restructure of Austral Bricks Queensland is underway, to deliver improved returns from this business. Some features of the restructure will include: A reduction in operating sites and kilns, following the closure of Riverview in 2012 A reduction in capacity from 105 million bricks per annum to 60 million. This has significantly increased plant efficiency. A reduction in employees from 87 to 59 A 57% reduction in the level of real capital employed in this business as we release land at Riverview and surplus land at Rochedale for development. The estimated market value of the land value to be released is $41.2 million The restructure in Queensland follows a similar strategy that has been completed in Victoria, and reflects management s focus on maximising the return on real capital deployed within the business. 18

20 Gas supply remains a serious concern for Brickworks, with the ability to secure competitive supply contracts on the East Coast at the expiry of current contracts in December 2014 still uncertain. Although recent publicity has resulted in offers of gas supply emerging, pricing is significantly higher than current rates, already up by 100% over the past five years. To reduce the impact of rising gas costs, Brickworks is working urgently on projects to transition from natural gas to alternative fuels. A number of these projects will be implemented over the next 18 months, and the benefits are expected to largely mitigate the impact of gas cost increases. 19

21 Bristile Roofing earnings were significantly higher than the prior half, up by 73.1%, despite a decline in volume of 4.2%. Total sales revenue of $54.3 million was up 7.2%, primarily as a result of strong price increases. Improvements in New South Wales, Queensland and Western Australia were offset by a decline in Victoria. Production at the Caversham plant in Western Australia ceased in November. The transition to an import business in Western Australia now underway, with locally manufactured stock currently being phased out. This lower fixed cost business model will enable supply to be easily and cost effectively adjusted to meet demand across the building cycle. Sales of imported La Escandella terracotta products continue to gather momentum on the East Coast, supplementing the locally manufactured concrete roof tile range. 20

22 Austral Masonry earnings were in line with the prior period. Sales revenue was up 5.9% to $27.8 million, supported by strong price increases, up 6.5%. On 8th February Austral Masonry completed the purchase of Boral s masonry operation at Prospect in New South Wales. This acquisition has enabled the rationalisation of production facilities, with the existing Port Kembla facility being closed earlier this month and volume transferred to Prospect. In addition to significant manufacturing and administrative synergies, the acquisition will enable an expanded paving and retaining wall product range to be offered along the East Coast. In addition, it will provide Brickworks with additional exposure to the expected strong growth in multiresidential construction in New South Wales over the medium term. The acquisition makes Austral the 2nd largest masonry producer on the East Coast. With strong competitive positions now established in most major East Coast markets the Austral Masonry business is well placed to deliver improved earnings in future years. 21

23 Austral Precast earnings were down on the prior period, despite an increase in sales revenue, up 5.8% to $33.4 million. New South Wales operations were disrupted by flooding at the Wetherill Park facility, due to a faulty water main valve at the adjacent Prospect Reservoir. In addition, delays in the commissioning process of the new batching plant adversely impacted performance. This batching plant is now in full production, allowing increased operating hours of the Wetherill park facility. As a result, this has enabled the operations in New South Wales to be consolidated to one site with the closure of the Prestons site during the half. In Queensland, following the acquisition of an independent in March 2012, operations were consolidated to the new site at Salisbury in August, resulting in increased scale and improved manufacturing efficiencies. The Western Australian result was impacted by difficulties encountered on a major job in the far north of the state. This project has highlighted the challenges associated with doing business in remote areas, and additional controls and processes are now in place to prevent any re-occurrences. 22

24 Auswest Timebers earnings was down on the prior period, despite an increase in revenue, up 16.6% to $33.4 million. The increase in revenue was assisted by the contribution of acquired Jarrah operations in Western Australia for the full period. Earnings were adversely impacted by a fire at the Deanmill facility in August, resulting in this site being down for the entire first half. This disruption had a significant impact on operations in Western Australia, with production being transferred to Pemberton. The Deanmill operation is expected to recommence in April. A long term log license is in place in Western Australia, placing operations in that state in a secure position. However uncertainty remains over log supply for the Orbost mill in Victoria, with a final decision from VicForests on future supply arrangements in that state yet to be announced. 23

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26 The recovery in building activity remains patchy and approvals data shows that the increase is being driven by the other residential segment and we are yet to see a broad-based increase in detached housing activity, with a number of states still in decline. However improving consumer confidence levels provides some optimism for the future. This is supported by anecdotal evidence that suggests a strong uplift in residential housing activity will occur in New South Wales, Western Australia and South Australia in the fourth quarter of this financial year. Future returns are likely to be assisted by significant industry rationalisation in the building products industry. Significant capacity reductions and exits by competitors across bricks, roofing and masonry have created an improved industry structure. This is highlighted by the strong pricing outcomes achieved by these businesses in the first half. Over the remainder of the year, all divisions will continue to implement price rises as and when necessary to return margins to an acceptable level. Brickworks competitive position is strong in most markets, following many years of continuous improvement programs, cost reduction initiatives, product development and prudent capital investment. On balance, the Building Products Group expect to deliver an improved result in the second half of 2013, on the back of ongoing benefits from internal restructuring activities and further price improvements. A successful settlement of outstanding insurance claims relating to the Deanmill fire and Wetherill Park flooding would also assist the result. 25

27 I will now go through our Property results. Before I do so, I would like to take a moment to highlight the image on the slide. In the foreground is an artists impression of the Oakdale Central estate, located at Eastern Creek in Sydney. This property is currently part of the Joint Venture Property Trust with the Goodman Group, with 2 DHL facilities already completed and a third facility under construction. In the background you can see the Oakdale South property that was sold into the Trust during the period. This property will provide an additional 62 hectares of developable land for the area. 26

28 Land and Development delivered an EBIT of $37.3 million for the half year ended 31 January 2013, an increase of 180.4% from $13.3 million for the previous corresponding period. Property sales contributed strongly to this result with the sale of the second stage of Oakdale, known as Oakdale South, into the JV Property Trust. This property, located in the popular Eastern Creek industrial precinct, should provide 62 hectares of net developable land to further expand the Brickworks/Goodman Industrial Trust. The prior corresponding period included no property sales. Property administration costs were well up on the prior half, due to increased land tax on the remaining Oakdale property as a result of its favourable zoning. I will now work through the Property Trust result in detail, before outlining the property pipeline and outlook. 27

29 The Property Trust delivered an EBIT for the half of $15.0 million, up 17.2% from $12.8m in the prior half. Rental Distribution profit of $5.1 million was up 37.8% from $3.7 million, on rental reviews, and one months rent from the newly completed Reedy Creek Estate and Jeminex Estate in Sydney. Revaluation profit on established properties of $3.8 million was in line with the prior half on flat capitalisation rates. An EBIT of $6.1 million was contributed through the valuation uplift resulting from the completion of the Reedy Creek Estate on M7 Business Hub, Eastern Creek and Jeminex Estate on Interlink Industrial Estate, Erskine Park. No vacant lots were sold from the Trust during the half. Two major developments are currently under construction: A 8,000 square metre expansion to the existing Toll facility on the M7 Business Hub; A 21,000 square metre facility for DHL on the Oakdale Central Estate, Eastern Creek. This is the third facility to be built for DHL on this property. These projects are due for completion in late calendar 2013 and will provide additional rental returns and capital growth for the Property Trust. Looking further ahead, the Property Trust has signed a Heads of Agreement with Coles Limited to expand the existing Cold Store Distribution Centre by 12,400 square metres to create a 55,500 square metre facility. This is currently subject to securing a Development Approval for the expansion. 28

30 The total value of the Property Trust Assets rose to $837.3 million at 31 January 2013, as a result of the sale of Oakdale South into the Property Trust. This sale increased the total net Trust assets by $125.2m. Borrowings also increased to $332.5m, on the completion of Reedy Creek Estate and Jeminex Estate, which gives a total net value of $504.8 million. Brickworks 50% share of the net asset value increased to $252.4 million. The return on the developed properties in the Trust was stable at 13.0%. 29

31 Details on the leased property trust assets are outlined in this table. The total value of leased properties is $603.0 million, up from $518.4 million at 31 July The increase is primarily due to the inclusion of two new developments, shown at the bottom of the table, a multi-tenant development at Reedy Creek and Jeminex at Erskine Park. The entire portfolio consists of A grade stock which is under five years old, with long lease terms and strong tenants. There is one vacancy in the portfolio, consisting of a 5,000square metre unit facility at the new Reedy Creek Estate. Annualised gross rental return is $49.0 million, up from $42.3 million. Capitalisation rates are in the range % 30

32 Brickworks land holdings total around 4,700hectares, split into operational and development land. Operational land is currently valued at $348 million, whilst the development land has the potential to be worth at least $270 million, assuming rezoning and development approval of these properties. The value of development land has decreased during the period, primarily as a result of the sale of Oakdale South into the Property Trust. The majority of land held for development is located in Victoria and New South Wales. 31

33 These properties will provide a long pipeline of development which is expected to continue well into the future. In the short term, the development work will continue to focused on Oakdale in New South Wales. As a result of the rezoning in November 2012, Rochedale will now be developed in the coming year. Development Approvals have also been secured for the Riverview site including a refurbishment of the existing 11,000m2 warehouse facility and sub-division of the vacant land 5 hectares of land into two lots. As can be seen from the property pipeline shown on screen, there are 3 stages of the Oakdale development in New South Wales totaling almost 200 hectares, 1 in Queensland at Rochedale totaling around 30 hectares, 1 in Victoria at Craigieburn totaling 180 hectares and 1 in Western Australia at Cardup totaling 100 hectares. 32

34 The strategic location of our Property Trust sites, at Eastern Creek in Sydney continues to attract new tenants. The recent completion of two facilities and commencement of the next two facilities, being the Toll expansion and the third DHL facility, points to an improvement in the industrial property market in this area. Rental returns will continue to increase as developments conclude over the next twelve months and beyond. Land sales have increased, as forecasted, with the sale of Oakdale South into the JV Trust, which will now support future expansion of the Trust. Whilst no major land sales are forecast in the next half, work is continuing on the development of Riverview and Rochedale for possible sale in FY14. Work continues on rezoning numerous surplus sites already identified for development including Craigieburn in Victoria and Cardup in Western Australia. 33

35 I will now go through our Investment results. 34

36 Brickworks owns 42.72% of WHSP, a core asset of Brickworks that has brought diversity and reliable earnings to the company. The main investments of WHSP are the holdings in New Hope Corporation, Brickworks, TPG Telecom, API, BKI Investment Company, Clover and Ruralco. The Normal equity accounted contribution was down 30.0% to $28.7 million for the first half. The market value of Brickworks investment in WHSP was $1.401 billion at 31 January 2013, up 4.2% or $56.0 million compared to the market value at 31 July Brickworks received normal fully franked dividends totaling $27.6 million from WHSP during the half. WHSP has delivered outstanding returns to its shareholders over the short, medium and long term, outperforming the ASX All Ordinaries Accumulation Index by 14.4% p.a. over five years, 4.2% p.a. over ten years and 5.7% p.a. over fifteen years. 35

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38 Housing activity remains patchy and difficult to predict. However if anecdotal reports of a strong pick up in activity in New South Wales, Western Australia and South Australia eventuate, then the Building Products Group is well placed to deliver improved earnings in the second half. There are no major land sales planned for the second half, and therefore earnings from Land and Development will be driven by the Property Trust. The Trust is expected to deliver continued growth. The short term outlook for Investments is clouded by volatility in commodity prices, however the diversified nature of Washington H Soul Pattinson s investments should continue to deliver increasing earnings to Brickworks over the long term. 37

39 I will now hand over to Brickworks Lead Independent Director, Mr. Robert Webster, who will provide an update on Brickworks investment in Washington H Soul Pattinson, on behalf of all the Directors. Following this there will be an opportunity to ask questions. 38

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